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This is a big week for Larry Ellison. His family’s yearlong pursuit of Warner Bros. Discovery, owner of one of Hollywood’s most iconic film studios, comes to a conclusion on Tuesday when the Ellison-controlled Paramount Skydance is scheduled to complete the $110 billion purchase of WBD. It’s been barely a year since the Ellisons got control of Paramount itself. Once the latest deal is done, Ellison and his son David—who is running the show—will be among the most powerful people in film, television and streaming.
Yes, techies really have taken over entertainment. The question now is whether the Ellisons can make money on this bet. That won’t be easy. The combined company—to be called Skydance, David Ellison announced on Friday—will carry debt amounting to $79 billion. That’s a hefty amount given that the company starts life with annual earnings before interest, taxes, depreciation and amortization of $12 billion. David Ellison’s pitch has been that he’ll find “synergies” (cost cuts in plain English) of $6 billion, bumping up projected Ebitda to $18 billion.
Assuming he can find the cost savings he is promising, the debt should be a little more manageable. Then again, it doesn't help that interest rates have risen. Most of the debt—more than $50 billion in bonds and term loans—was raised last week at interest rates of between 6.3% and 9.125%. Ouch. Even debt investors seem dubious about Skydance’s prospects. Bloomberg reported that once the bonds began trading, they quickly fell in value, leaving investors with “more than $100 million in losses.” Meanwhile, Paramount’s stock has fallen 29% since it announced the acquisition at the end of February.
Investor skepticism is reasonable. David Ellison will be looking to cut costs at companies that have already undergone plenty of the same. WBD, after all, was created from the 2022 merger of Warner Media and Discovery, and that company spent the past few years slashing costs to deal with its debt. Moreover, in the year since Ellison’s Skydance bought Paramount, he engaged in plenty of cost-cutting efforts there.
An even bigger issue is that a significant portion of the combined company’s revenue and profits will come from cable channels, which are steadily declining as streaming replaces the cable TV system. Both Paramount and WBD are big owners of cable channels, and both have seen declines in that segment already. In securities filings preparing for the merger, WBD projected that revenue from its cable channels would drop 8% over the next four years, while profits would fall 30%.
To be sure, WBD projects that growth in its streaming business will more than offset the declines in cable. But how reliable are those streaming projections? The streaming market has matured. Streaming services are increasingly reliant on price increases for revenue growth. That will make consumers pickier about which services they pay for. Still, Skydance is now one of a handful of major players. It will start life with more than 200 million streaming subscribers between its various services (which will be combined into one eventually). That number compares with Netflix’s 325 million (as of January) and is competitive with Disney.
The Ellisons are taking on this costly new commitment even as Larry Ellison’s primary source of wealth—Oracle—is facing its own challenges. The software-and-cloud firm has borrowed heavily to become a major player in AI data centers, which has sent its stock on a roller-coaster ride. So far this year, Oracle shares are down 27%. Ellison has pledged more than a third of his 38% stake in Oracle as security for loans, ensuring that he is sensitive to the stock price.
The Larry and David show should be worth tuning into over the next couple of years.
Amazon’s Big Sale
Christmas is months away, but it’s never too early to do some holiday shopping. That certainly seems to be Amazon’s attitude. The e-commerce giant is having Prime Big Deal Days on Tuesday and Wednesday, which it bills as a kickoff to “fall and holiday shopping.”
Amazon says all the bargains require Prime membership, so it also uses this sale event as a way to drive Prime subscriptions. Expect lots of chatter about great deals on Amazon this week.
In Other News
• The Trump administration’s new AI task force plans to produce a report on the risks and opportunities of artificial intelligence within 120 days, according to an interview with the newly announced “AI czar” Jay Clayton on Saturday in the Wall Street Journal. Clayton also serves as the director of national intelligence.
• Amazon Web Services has pledged to spend $1 billion over the next five years upgrading heat and water systems in schools, homes and other municipal buildings, among other projects, as part of an effort to win over local communities who fear data centers.
• Infinigence AI, a Chinese provider of AI cloud infrastructure, has filed confidentially for an IPO in Hong Kong to raise several hundred million U.S. dollars, Bloomberg reported.
• A state-backed Chinese financing company has revealed in documents filed with regulators that it funded the purchase of Nvidia chips subject to U.S. export restrictions, Bloomberg reported on Friday.
• U.S. authorities arrested a California man on Thursday for smuggling more than $300 million worth of servers containing restricted Nvidia AI chips to China. Greg Lui, owner of Earthmade Computer Inc., a privately held company based in San Gabriel Valley, allegedly worked with conspirators from 2023 to 2024 to trade export-controlled items without the required licenses.
• Microsoft on Thursday launched speech-generating AI that the company says is both cheaper and more accurate than competing models from the likes of ElevenLabs, SpaceXAI and Google.
• Anchorage Digital, the first federally chartered U.S. digital-asset bank, has cut 17% of jobs, CEO Nathan McCauley told employees this week, The Information reported.
• Elon Musk will change the name of SpaceX’s AI unit, SpaceXAI, to SpaceXSI, he said in a post on X on Sunday, adopting President Donald Trump’s preferred name for AI.
Friday on The Information’s TITV
Check out Friday’s episode of TITV in which AI and finance reporter Dakin Campbell speaks with host Akash Pasricha about the tightening credit market for data center debt.
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